The Dangers of Sua Sponte

Yesterday’s guilty pleas in the Danielczyk criminal trial leaves open an important question that campaign finance practitioners must consider closely going forward: when does the government consider a sua sponte submission itself to constitute a criminal violation, and seek to compel counsel to become a witness against their client? As BNA first reported, the Justice Department fought to compel the testimony of two experienced campaign finance lawyers against William Danielczyk, the CEO and Chairman of their client Galen Capital, and his co-defendant, Eugene Biagi, the Secretary and Treasurer of Galen Capital. The basis for this effort to convert advocates to witnesses: the lawyers prepared and filed a sua sponte submission to the FEC on behalf of their client, which the Justice Department intended to use against the defendants at trial.

Under the FEC’s sua sponte policy, a person who has committed a violation of the campaign finance laws that would otherwise go undetected may voluntarily admit to the violation and if it has taken certain remedial steps, it may be eligible for a reduction in the civil penalty the FEC would otherwise seek. The policy, adopted in 2007, has generally been viewed as an effective means for parties to rectify violations.

Danielczyk faced criminal charges for having Galen Capital reimburse employee and vendor contributions to Hillary Clinton’s presidential campaign in 2007, and then seeking to cover up the wrongdoing. (As Inside Political Law recently noted, the Supreme Court denied certiorari in the case on Danielczyk’s claim that corporate contributions were permissible after Citizens United.) Galen Capital used the FEC’s sua sponte policy to disclose its campaign violations to the FEC, while denying the violations were knowing or willful. The DOJ argued that the sua sponte submission waived attorney-client privilege and non-opinion work product protection for the entire subject matter of what Danielczyk and Biagi told Galen Capital’s lawyers. Specifically, DOJ sought to compel attorney testimony to answer four questions:

Did Danielczyk make the statements attributed to him in the sua sponte submission?

Where was Danielczyk located when he made those statements?

Did Danielczyk review and approve the sua sponte submission being sent, in its final form, to the FEC?

Did Biagi review and approve the sua sponte submission being sent, in its final form, to the FEC?

These facts were important because the criminal case, in part, was based on allegedly false statements Danielczyk made to the government through the sua sponte submission.

Although there has always been a risk that the government could allege (rightly or not) that a subject-matter privilege waiver occurred when a voluntary disclosure is made, Danielczyk highlights that risk. It represents the first time that we know of the government seeking trial testimony from attorneys over the preparation of a sua sponte submission to the FEC. This is no small matter for the FEC. Sua sponte submissions were a major source of the FEC’s enforcement cases last year. In our report on the FEC’s operations during 2012, we found that roughly half of the agency’s largest penalties for substantive violations (i.e., for non-reporting violations) and about twenty percent of its largest reporting violations arose from sua sponte submissions. So while the case proceeds to the sentencing of Danielczyk and Biagi, for practitioners before the FEC, it will serve as a reminder of the government’s apparent willingness to convert the sua sponte process into a weapon against a client, and to seek to compel the lawyer to participate as well.